(712 HK - HK$2.47) Comtec. Overweight. More New Orders to Provide Downside Protection. Company Note 5 October 2010

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1 COMPANY BACKGROUND, which commenced its solar business in 2004, manufactures and sells monocrystalline wafers to solar cell manufacturers worldwide. Based in Nanhui District, Shanghai, it had 741 employees at end It plans to expand its annual production capacity of wafers from 200MW at end-2009 to 600MW at end John ZHANG, the chairman, owns a 58.7% stake. Chi Man Wong, Sr Research Analyst , chi.man.wong@pjc.com Piper Jaffray Asia Securities Limited Wayne KW Fung, Research Analyst , wayne.kw.fung@pjc.com Piper Jaffray Asia Securities Limited Reason for Report: Change in Price Target Changes Previous Current Rating -- Overweight Price Tgt (HK$) FY10E Rev (Rmb m) -- 1, FY11E Rev (Rmb m) 3, , FY10E EPS (Rmb) FY11E EPS (Rmb) Price (HK$): Week High (HK$): Week Low (HK$): Month Price Target (HK$): x FY11 P/E Shares Out (mil): 1,131.7 Market Cap. (HK$m): 2,795.3 Market Cap. (US$m): Free Float Market Cap (m) ($): Div (ann Rmb): 0.01 Avg Daily Vol (000): 5952 Book Value/Share (HK$) : 1.2 Net cash per share (HK$) : 0.2 Est LT EPS Growth : 30% P/E to LT EPS Growth (FY11): 0.2x Est Next Rep Date : Oct 2010 Fiscal Year End: Dec 1H10 for Book Value/share and Net Cash/share Auditor: Deloitte Rev (Rmb m) FY09A FY10E FY11E H A A 1,519.80E H A E 1,978.80E FY A 1,300.00E 3,498.60E EPS (Rmb) FY09A FY10E FY11E H1 0.01A 0.06A 0.15E H2 0.02A 0.13E 0.19E FY 0.03A 0.19E 0.34E FY P/E 70.9x 11.2x 6.3x Comtec Overweight (712 HK - HK$2.47) More New Orders to Provide Downside Protection CONCLUSION: We raise our FY11E EPS forecast by 8% as Comtec has secured 120MW new orders from Dongfeng Electric on top of its existing 650MW order book for 2011E. We lift our PT from HK$2.87 to HK$3.10 (8x FY11E EPS) accordingly and reiterate our OW rating. Currently we only assume 700MW (instead of 770MW) shipment next year, which should provide a buffer for any potential delay in capacity expansion. We understand the company is reviewing its expansion schedule to ensure it can deliver all of the 770MW orders. As such, we see upside risks to our projections once the company discloses a revised capex plan to meet the strong demand from customers. 2011E order book reached 770MW. Comtec announced that it has signed a new wafer supply framework agreement with Dongfeng Electric (Yixing) Maiji Solar Technology, a subsidiary of Dongfeng Electric (01072.HK). According to the agreement, Comtec will supply up to 120MW monocrystalline solar wafers to this new customer next year. Prior to this agreement, Comtec's 2011E order book had already reached 650MW. Need to accelerate capacity expansion schedule. The original plan of Comtec was to expand the year-end capacity from 600MW in 2010 to 1,000MW in Our original effective capacity estimate was about 650MW for Management agrees that the company needs to accelerate the capacity expansion schedule and may also need to raise its year-end capacity target for 2011 to fulfill the 770MW orders. Details of the revised capex plan will be disclosed soon. September's share placement justified. We understand that some investors might be puzzled by the share placement last month as the company is still in a net cash position. However, the strong customer demand proved that Comtec has genuine capital needs to support its business growth. Upside risk to our forecasts. Based on the original capacity expansion schedule, we believe it may be a challenging task to ship 770MW next year. So we project only 700MW shipment for 2011 at the moment. However, once the company releases a concrete plan to show how it will achieve the new shipment target, we will review our forecast accordingly. INVESTMENT RECOMMENDATION: We maintain our Overweight rating on Comtec. Trading at 6.4x FY11E P/E, the current valuation is still undemanding in our view. We lift our PT from HK$2.87 to HK$3.10, based on 8x FY11E P/E (unchanged multiple), after we raise our FY11E EPS forecast by 8%. RISKS TO ACHIEVEMENT OF TARGET PRICE: (1) Cyclical industry; (2) high earnings sensitivity; (3) production ramp risk; (4) concentrated customer base; (5) policy risks; and (6) limited equipment suppliers. Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decisions. This report should be read in conjunction with important disclosure information, including an attestation under Regulation Analyst certification, found on pages 6-8 of this report or at the following site: This research report has been prepared in whole or part by non-us research analysts who may be associated persons of Piper Jaffray & Co. These research analysts are not registered/qualified as research analysts with FINRA, but instead have satisfied the registration/qualification requirements or other research-related standards of a non-us jurisdiction that have been recognized for these purposes by FINRA. Page 1 of 8

2 Exhibit 1: 2011 Order Book Source: Company data Exhibit 2: Comtec's Operating Statistics 2008A 2009A 2010E 2011E Year end capacity (MW) Wafers Ingots Sales volume (MW) Wafer (MW) Ingot (MW) Total MW Sold (including ingot) y/y change 128.4% 84.2% 179.4% 207.0% Wafer price RMB /Watt USD /Watt y/y change -2.6% -65.1% -4.2% -12.0% Unit cost Total wafer cost (Rmb /Watt) (USD /Watt) Non silicon unit cost (Rmb /Watt) (USD /Watt) Silicon cost (Rmb /Watt) (USD /Watt) Poly silicon cost (USD/kg) Sources: Company data, Piper Jaffray Asia Securities Limited estimates Page 2 of 8

3 Exhibit 3: Peer Valuations Price# Market cap PE PB EV/EBITDA Ticker Company (Local currency) (US$ mil) 2009A 2010E 2011E 2009A 2010E 2009A 2010E 2011E Wafer-focused manufacturers LDK US Equity LDK SOLAR CO-ADR ,334 n/a n/a SOL US Equity RENESOLA LTD-ADR ,067 n/a n/a 1.9 n/a n/a n/a PVCS LN Equity PV CRYSTALOX H Equity SOLARGIGA ENERGY n/a n/a TT Equity GREEN ENERGY TEC n/a n/a 5483 TT Equity SINO-AMERICAN AVERAGE H Equity COMTEC SOLAR # as of October 4, Sources: Bloomberg, Piper Jaffray Asia Securities Limited estimates Page 3 of 8

4 Comtec Solar Systems Income Statement (Rmb'000, except for per share amount) 1H09A 2H09A 1H10A 2H10E 1H11E 2H11E 2007A 2008A 2009A 2010E 2011E Revenue 184, , , ,233 1,519,800 1,978, , , ,876 1,300,295 3,498,600 Solar wafers 169, , , ,233 1,519,800 1,978, , , ,725 1,300,295 3,498,600 Semiconductor 14,733 6, ,512 36,637 21, COGS (165,653) (286,107) (331,048) (655,931) (1,248,480) (1,640,840) (190,166) (530,802) (451,760) (986,979) (2,889,320) Gross profit 18,600 36,516 98, , , , , ,301 55, , ,280 Other op. income 3, ,504 2,898 7,599 6,395 11,769 41,485 3,292 10,402 13,994 Other expenses (1,468) (1,942) (1,734) (80,285) (3,410) (1,734) - Distribution & selling expenses (1,155) (1,066) (791) (4,410) (6,079) (7,915) (635) (1,401) (2,221) (5,201) (13,994) Adm. & general expenses (9,417) (8,768) (18,806) (28,005) (60,792) (65,158) (11,181) (23,888) (18,185) (46,811) (125,950) Operating Profit 9,592 25,000 84, , , , , ,212 34, , ,330 Interest expenses (4,232) (2,437) (3,799) (6,164) (8,596) (11,638) (808) (6,295) (6,669) (9,963) (20,234) Other gain/(losses) 1,020 2, , ,132 4,105 5,648 3,407 4,257 3,752 Profit before taxation 6,380 24,950 80, , , , , ,565 31, , ,848 Taxation (1,950) (4,439) (12,219) (35,349) (34,692) (49,340) (14,797) (35,086) (6,389) (47,568) (84,033) Net Income 4,430 20,511 68, , , , , ,479 24, , ,816 Exceptional items (1,468) (1,942) (80,285) (3,410) - - Recurring Net Income 5,898 22,453 68, , , , , ,764 28, , ,816 EPS (Rmb) Recurring EPS (Rmb) DPS (Rmb) Core EBIT 11,060 26,942 84, , , , , ,497 38, , ,330 Core EBITDA 21,938 39, , , , , , ,332 60, , ,398 Wafer volume (MW, including ingot) Wafer ASP (Rmb/W) Ingot ASP (Rmb/W) Growth Rates: Revenue -44% -25% 133% 170% 254% 127% 158% 118% -33% 157% 169% Core EBIT -94% -64% 661% 590% 152% 46% 115% 56% -85% 610% 79% Core EBITDA -88% -55% 370% 446% 133% 43% 116% 61% -77% 418% 72% Recurring Net Income -96% -67% 1062% 560% 147% 44% 131% 44% -87% 664% 77% Margins and Ratios: Gross margin 10.1% 11.3% 22.8% 24.7% 17.9% 17.1% 45.5% 30.4% 10.9% 24.1% 17.4% EBIT margin 6.0% 8.4% 19.6% 21.3% 14.0% 13.7% 45.5% 32.5% 7.5% 20.8% 13.8% EBITDA margin 11.9% 12.1% 24.0% 24.4% 15.8% 15.4% 47.9% 35.2% 12.0% 24.3% 15.6% Net margin 2.4% 6.4% 16.0% 17.0% 11.1% 10.8% 42.2% 17.3% 4.9% 16.7% 10.9% Recurring Net margin 3.2% 7.0% 16.0% 17.0% 11.1% 10.8% 42.2% 27.8% 5.6% 16.7% 10.9% Sources: Company data, Piper Jaffray Asia Securities Limited estimates Date: October 4, 2010 Current disclosure information for this company is located at Page 4 of 8

5 Comtec Solar Systems Balance Sheet (Rmb'000, except for per share amount) Statement of Cash Flow 2007A 2008A 2009A 2010E 2011E 2007A 2008A 2009A 2010E 2011E Cash and cash equivalents 150, , , , ,311 Profit before tax 162, ,565 31, , ,848 Trade receivables 43,903 92, , , ,000 Depreciation & Amortization 8,325 20,835 22,941 46,015 61,068 Inventories 33,647 33, , , ,000 Change in working capital (420) (363,544) (130,723) (153,123) (330,932) Others current assets 78,546 52,330 69,231 69,231 69,231 Others 1,671 22,031 7,224 (41,862) (67,551) Total current assets 306, , ,951 1,033,480 1,637,542 Net operating cash flow 171,724 (154,113) (69,228) 115, ,433 Property, plant and equipment 219, , , ,567 1,170,500 Capex (118,383) (72,200) (172,319) (400,000) (450,000) Advances to suppliers 81, , , , ,810 Others 331 (8,210) 1,147 4,257 3,752 Others 8,747 45,013 56,332 56,332 56,332 Net investing cash flow (118,052) (80,410) (171,172) (395,743) (446,248) Total non-current assets 309, , ,724 1,021,709 1,410,642 Change in debt 18, ,000 6, , ,768 Total assets 615, ,261 1,410,675 2,055,189 3,048,184 Capital Contribution 2, , Payment of transaction costs of new shares issuance - (4,802) (37,780) - - Trade and other payables 97, , , , ,000 Dividends paid (2,407) - - (7,532) (32,505) Bank borrowings 20, , , , ,568 Proceeds from issue of new shares , ,000 - Customers' deposits received 148, Others 2,646 (6,056) (8,152) (9,963) (20,234) Others current liabilities 36,698 5, Net financing cash flow 20, , , , ,029 Total current liabilities 302, , , ,623 1,223,307 Increase / Decrease in cash 74,318 15, ,147 52,859 (153,786) Bank borrowings Net cash (debt) (34,558) 25, , ,297 (214,257) Others 164,646 3,251 3,774 3,774 3,774 Total non-current liabilities 164,646 3,251 3,774 3,774 3,774 Finance Ratios Total liabilities 467, , , ,397 1,227, A 2008A 2009A 2010E 2011E Share capital P/E (x) Preferred share capital EPS growth (%) n/a 43.7 (86.6) Reserves 148, ,667 1,060,715 1,469,882 1,820,193 PEG (x) n/a 0.24 (0.91) Shareholders' equity 148, ,917 1,061,625 1,470,792 1,821,103 Yield (%) n/a ,641,295 EV/EBITDA (x) n/a n/a BVPS (Rmb) P/B (x) n/a n/a Revenue growth (%) Gross margin (%) Net profit margin (%) Recurring net margin (%) Days receivables Days payables Days inventories Current ratio (x) Quick ratio (x) Asset/Equity (x) Net debt/equity (%) 23 Net cash Net cash Net cash 12 Sources: Company data, Piper Jaffray Asia Securities Limited estimates Date: October 4, 2010 Current disclosure information for this company is located at ROA (%) ROE (%) Page 5 of 8

6 Important Research Disclosures Rating and Price Target History for: as of /18/10 I:OW:HK$2.3 07/27/10 OW:HK$ /17/10 OW:HK$ /13/10 OW:HK$ Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q Created by BlueMatrix Notes: The boxes on the Rating and Price Target History chart above indicate the date of the Research Note, the rating, and the price target. Each box represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first Note written during the past three years. Legend: I: Initiating Coverage R: Resuming Coverage T: Transferring Coverage D: Discontinuing Coverage S: Suspending Coverage OW: Overweight N: Neutral UW: Underweight B: Buy (Piper Jaffray discontinued use of the B, N, and S ratings on June 30, 2009) N: Neutral S: Sell OP: Outperform (Piper Jaffray discontinued use of the OP, MP and UP ratings on November 15, 2007) MP: Market Perform UP: Underperform AL On/AL Off: Placed on/removed from the Alpha List maintained by Piper Jaffray (AL use discontinued March 2010) NA: Not Available UR: Under Review Distribution of Ratings/IB Services Piper Jaffray IB Serv./Past 12 Mos. Rating Count Percent Count Percent BUY [OW] HOLD [N] SELL [UW] Note: Distribution of Ratings/IB Services shows the number of companies currently in each rating category from which Piper Jaffray and its affiliates received compensation for investment banking services within the past 12 months. FINRA rules require disclosure of which ratings most closely correspond with "buy," "hold," and "sell" recommendations. Piper Jaffray ratings are not the equivalent of buy, hold or sell, but instead represent recommended relative weightings. Nevertheless, Overweight corresponds most closely with buy, Neutral with hold and Underweight with sell. See Stock Rating definitions below. Page 6 of 8

7 Important Research Disclosures Analyst Certification Chi Man Wong, Sr Research Analyst Analyst Certification Wayne KW Fung, Research Analyst The views expressed in this report accurately reflect my personal views about the subject company and the subject security. In addition, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Research Disclosures Piper Jaffray expects to receive or intends to seek compensation for investment banking services from in the next 3 months. Piper Jaffray has received compensation for investment banking services from or has had a client relationship with within the past 12 months. Within the past 12 months Piper Jaffray was a managing underwriter of a public offering of, or dealer manager of a tender offer for, the securities of or the securities of an affiliate. Within the past 3 years Piper Jaffray participated in a public offering of, or acted as a dealer manager for, securities. Piper Jaffray Asia Limited, an affiliate of Piper Jaffray Asia Securities Limited, is the retained compliance advisor or financial advisor to Comtec Solar Systems Group Limited. Affiliate Disclosures: This report has been prepared by Piper Jaffray & Co. and/or its affiliates Piper Jaffray Ltd. and Piper Jaffray Asia Securities Limited, all of which are subsidiaries of Piper Jaffray Companies (collectively Piper Jaffray). Piper Jaffray & Co. is regulated by FINRA, NYSE, and the United States Securities and Exchange Commission, and its headquarters is located at 800 Nicollet Mall, Minneapolis, MN Piper Jaffray Ltd. is registered in England, no , and its registered office is One South Place, London, EC2M 2RB. Piper Jaffray Ltd. is authorised and regulated by the UK Financial Services Authority ("FSA"), entered on the FSA's register, no and is a member of the London Stock Exchange. Piper Jaffray Asia Securities Limited is a licensed corporation regulated by the Securities and Futures Commission of Hong Kong ("SFC"), entered on the SFC's register, no. ABO154, and is an exchange participant of The Stock Exchange of Hong Kong Limited. Its headquarters is located at 39/F Tower 1 Lippo Centre, 89 Queensway, Hong Kong. Disclosures in this section and in the Other Important Information section referencing Piper Jaffray include all affiliated entities unless otherwise specified. Piper Jaffray research analysts receive compensation that is based, in part, on overall firm revenues, which include investment banking revenues. Rating Definitions Stock Ratings: Piper Jaffray ratings are indicators of expected total return (price appreciation plus dividend) within the next 12 months. At times analysts may specify a different investment horizon or may include additional investment time horizons for specific stocks. Stock performance is measured relative to the group of stocks covered by each analyst. Lists of the stocks covered by each are available at Stock ratings and/or stock coverage may be suspended from time to time in the event that there is no active analyst opinion or analyst coverage, but the opinion or coverage is expected to resume. Research reports and ratings should not be relied upon as individual investment advice. As always, an investor's decision to buy or sell a security must depend on individual circumstances, including existing holdings, time horizons and risk tolerance. Piper Jaffray sales and trading personnel may provide written or oral commentary, trade ideas, or other information about a particular stock to clients or internal trading desks reflecting different opinions than those expressed by the research analyst. In addition, Piper Jaffray technical research products are based on different methodologies and may contradict the opinions contained in fundamental research reports. Overweight (OW): Anticipated to outperform relative to the median of the group of stocks covered by the analyst. Neutral (N): Anticipated to perform in line relative to the median of the group of stocks covered by the analyst. Underweight (UW): Anticipated to underperform relative to the median of the group of stocks covered by the analyst. An industry outlook represents the analyst's view of the industry represented by the stocks in the analyst's coverage group. A Favorable industry outlook generally means that the analyst expects the fundamentals and/or valuations of the industry to improve over the investment time horizon. A Neutral industry outlook generally means that the analyst does not expect the fundamentals and/or valuations of the industry to either improve or deteriorate meaningfully from its current state. An Unfavorable industry outlook generally means that the analyst expects the fundamentals and/or valuations of the industry to deteriorate meaningfully over the investment time horizon. Page 7 of 8

8 Other Important Information The material regarding the subject company is based on data obtained from sources we deem to be reliable; it is not guaranteed as to accuracy and does not purport to be complete. This report is solely for informational purposes and is not intended to be used as the primary basis of investment decisions. Piper Jaffray has not assessed the suitability of the subject company for any person. Because of individual client requirements, it is not, and it should not be construed as, advice designed to meet the particular investment needs of any investor. This report is not an offer or the solicitation of an offer to sell or buy any security. Unless otherwise noted, the price of a security mentioned in this report is the market closing price as of the end of the prior business day. Piper Jaffray does not maintain a predetermined schedule for publication of research and will not necessarily update this report. Piper Jaffray policy generally prohibits research analysts from sending draft research reports to subject companies; however, it should be presumed that the analyst(s) who authored this report has had discussions with the subject company to ensure factual accuracy prior to publication, and has had assistance from the company in conducting diligence, including visits to company sites and meetings with company management and other representatives. This report is published in accordance with a conflicts management policy, which is available at Notice to customers: This material is not directed to, or intended for distribution to or use by, any person or entity if Piper Jaffray is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to such person or entity. Customers in any of the jurisdictions where Piper Jaffray and its affiliates do business who wish to effect a transaction in the securities discussed in this report should contact their local Piper Jaffray representative. Europe: This material is for the use of intended recipients only and only for distribution to professional and institutional investors, i.e. persons who are authorised persons or exempted persons within the meaning of the Financial Services and Markets Act 2000 of the United Kingdom, or persons who have been categorised by Piper Jaffray Ltd. as professional clients under the rules of the Financial Services Authority. Asia: This report is distributed in Hong Kong by Piper Jaffray Asia Securities Limited, which is regulated by the Hong Kong SFC. This report is intended only for distribution to professional investors as defined in the Hong Kong Securities and Futures Ordinance and is for the use of intended recipients only. United States: This report is distributed in the United States by Piper Jaffray & Co., member SIPC, FINRA and NYSE, Inc., which accepts responsibility for its contents. The securities described in this report may not have been registered under the U.S. Securities Act of 1933 and, in such case, may not be offered or sold in the United States or to U.S. persons unless they have been so registered, or an exemption from the registration requirements is available. This report is produced for the use of Piper Jaffray customers and may not be reproduced, re-distributed or passed to any other person or published in whole or in part for any purpose without the prior consent of Piper Jaffray & Co. Additional information is available upon request. Copyright 2010 Piper Jaffray. All rights reserved. Page 8 of 8